
	November 30, 2005 Welcome to The Pipeline, Andrew Davidson & Co., Inc.'s monthly newsletter. Created as a "pipeline" of relevant and useful information for participants in the fixed income industry, we address recent trends, changes and advances that our consultants, developers and sales force have extensively studied. We value your input and urge you to contact us with questions, comments or article suggestions. Enjoy!



	AD&Co. Update Model Performance Review Valuation Commentary

AD&Co. Update

A Comparison of Speeds: v4.3.4 vs. v5.1c

By Rob Landauer

In last month’s Pipeline, we announced the release of v5.1c of our MBS Enhanced Prepayment Model which updated and refit all of the fixed rate agency models. As with any model release, customers need to know how upgrading from their current version (4.3.4a or 5.0.1a) to v5.1c will impact the valuation and hedge ratios for their MBS holdings. Read more...

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Model Performance Review

Model Performance
By Dan Szakallas

As expected, prepayments dropped again in October, although the decreases were not as drastic as we anticipated. FNMA 30-year discounts declined by 10% and 6.5% for 4.5’s and 5.0’s, respectively. Cuspy premiums dropped about 5% and deep premiums dropped about 5-6%. GNMA collateral also waned, and for the discounts the decrease was a bit stronger than the FNMA’s; 5.0’s and 5.5’s fell by 11% and 10.5%, respectively. Actual pool CPR speeds of selected coupon buckets, along with corresponding model forecasts are shown Read more...

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Valuation Commentary

Valuation Q&As. Part 2: Valuation of MBS with OAS and prOAS

By Alex Levin

Methodology

Q. Many instruments are still valued using the static method… Is OAS truly necessary?
A. If we review our mathematical education and knowledge (ranging from Calculus I to a PhD), we will find a single intuitive motivation for every theorem, lemma or solution technique and that is our desire to express the unknown through the known. In finance, we strive to compute the unknown price of an MBS using known prices of other fixed-income instruments. Unfortunately, no static measure can be strictly derived for an MBS using direct relationships to other instruments. It is impossible to postulate a well-defined rule that would point us to the right yield or Z-spread to use. Read more...

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	This email was delivered to laura@ad-co.com. The information contained in The Pipeline is believed to be reliable, but its accuracy and completeness are not guaranteed. All expressions of opinion are subject to change without notice. The Pipeline is provided for informational purposes only and is not a solicitation, endorsement or a recommendation for purchase or sale of any particular security. An affiliate of Andrew Davidson & Co., Inc. engages in trading activities in securities that may be the same or similar to those discussed in this publication.